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Crude Oil Comeback

What’s Happening Now, What’s Next?

VIEW SPECIAL REPORT (PDF)

SUMMARY

After falling from over $100 a barrel to its low point of $26 in February 2016, prices for crude oil have now risen to about $50 a barrel. While that’s nearly a 100 percent increase, oil is still comparatively cheap. But the current state of crude oil also necessitates a look at other investments that move with the price of oil—directly or indirectly.

In this special report, we take a closer look at oil’s descent and its subsequent climb out of the abyss. Has the roller coaster hit a plateau? And, if so, what does this mean for producers, the lenders that previously supplied the money to support them, and oil-related master limited partnerships? Investors should take notice now of how crude oil pricing could affect related investment opportunities.

KEY TAKEAWAYS

  • The recent price surge for crude oil may not be enough to stave off a heightened level of defaults and bankruptcies as producers struggle to recoup their capital investment and meet debt obligations.
  • We suggest shying away from businesses that look and feel like derivative plays on the price of oil, such as the exploration and production industry vertical. Rather, we favor energy companies with strong balance sheets, a lower degree of margin compression, and attractive relative valuations.
  • It would be a bit bold to assume that master limited partnerships (MLPs) would appreciate at the same pace as they have in recent months, but their yield alone in this depressed interest rate environment gives them appeal to certain types of investors.